interest rate swaps. A gap is considered positive when the amount of interest-rate sensitive assets exceeds the amount of interest-rate sensitive liabilities. A gap is considered negative when the amount of interest-rate sensitive liabilities exceeds interest-rate sensitive assets. During a period of rising interest rates, a negative gap would tend to adversely affect net interest income, while a positive gap would tend to result in an increase in net interest income. During a period of falling interest rates, a negative gap would tend to result in an increase in net interest income, while a positive gap would tend to affect net interest income adversely. Because different types of assets and liabilities with the same or similar maturities may react differently to changes in overall market rates or conditions, changes in interest rates may affect net interest income positively or negatively even if assets and liabilities were perfectly matched in each maturity category. The amount of assets and liabilities utilized to compute our interest rate sensitivity gap was determined in accordance with the contractual terms of the assets and liabilities, except that adjustable-rate loans and securities are included in the period in which their interest rates are first scheduled to adjust and not in the period in which they mature. The effects of interest rate swaps, whereby we generally pay a fixed rate and receive a floating rate and effectively lock in our financing costs for a longer term, are also reflected in our interest rate sensitivity gap. The interest rate sensitivity of our assets and liabilities in the following table at December 31, 2023 could vary substantially based on actual prepayment experience. Less than 3 Months 3-12 Months More than 1 Year to 3 Years 3 Years and Over Total Financial assets (dollars in thousands) Cash and cash equivalents $ 1,412,148 $ — $ — $ — $ 1,412,148 Agency mortgage-backed securities (principal) — 2,500 1,017,978 65,895,324 66,915,802 Residential credit risk transfer securities (principal) 1,000 — 6,838 916,891 924,729 Non-agency mortgage-backed securities (principal) 223,943 27,844 820,276 1,166,032 2,238,095 Commercial mortgage-backed securities (principal) — 132,242 92,355 — 224,597 Total securities 224,943 162,586 1,937,447 67,978,247 70,303,223 Residential mortgage loans (principal) — — — 2,315,093 2,315,093 Total loans — — — 2,315,093 2,315,093 Assets transferred or pledged to securitization vehicles (principal) — — — 14,296,110 14,296,110 Total financial assets - maturity 1,637,091 162,586 1,937,447 84,589,450 88,326,574 Effect of utilizing reset dates (1) 16,192,657 256,055 95,991 (16,544,703) — Total financial assets - interest rate sensitive $ 17,829,748 $ 418,641 $ 2,033,438 $ 68,044,747 $ 88,326,574 Financial liabilities Repurchase agreements $ 58,629,278 $ 3,572,265 $ — $ — $ 62,201,543 Debt issued by securitization vehicles (principal) — — — 12,623,492 12,623,492 Participations issued (principal) — — — 1,086,538 1,086,538 U.S. Treasury securities sold, not yet purchased 2,132,751 — — — 2,132,751 Total financial liabilities - maturity 60,762,029 3,572,265 — 13,710,030 78,044,324 Effect of utilizing reset dates (1)(2) (49,746,861) (1,400,700) 15,028,564 36,118,997 — Total financial liabilities - interest rate sensitive $ 11,015,168 $ 2,171,565 $ 15,028,564 $ 49,829,027 $ 78,044,324 Maturity gap $ (59,124,938) $ (3,409,679) $ 1,937,447 $ 70,879,420 $ 10,282,250 Cumulative maturity gap $ (59,124,938) $ (62,534,617) $ (60,597,170) $ 10,282,250 Interest rate sensitivity gap $ 6,814,580 $ (1,752,924) $ (12,995,126) $ 18,215,720 $ 10,282,250 Cumulative rate sensitivity gap $ 6,814,580 $ 5,061,656 $ (7,933,470) $ 10,282,250 (1) Maturity gap utilizes stated maturities, or prepayment expectations for assets that exhibit prepayment characteristics, while interest rate sensitivity gap utilizes reset dates, if applicable. (2) Includes effect of interest rate swaps. The methodologies we employ for evaluating interest rate risk include an analysis of our interest rate “gap,” measurement of the duration and convexity of our portfolio and sensitivities to interest rates and spreads. Stress Testing We utilize liquidity stress testing to ensure we have sufficient liquidity under a variety of scenarios and stresses. These stress tests assist with the management of our pool of liquid assets and influence our current and future funding plans. The stresses applied include market-wide and firm-specific stresses. ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Item 7. Management’s Discussion and Analysis 73
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